Fatwa No : 84354
Ruling on Taking a Loan from One’s G.P. Fund and Repaying it with a Higher Amount

Ruling on Taking a Loan from One’s G.P. Fund and Repaying it with a Higher Amount

What do the Islamic scholars say about the following matter? I am a permanent employee at a company where a fund is collected under the name of a G.P. (General Provident) Fund. Occasionally, I take an advance from the company referred to as “6 Basic,” and I repay the amount to the company in installments. However, the company charges me an extra amount — for example, if I borrow 30,000, I have to repay 35,000. The company provides me this amount from my own Provident Fund and deposits it back into the same fund. Is it permissible to take this amount? Kindly provide guidance in light of Islamic teachings.

الجوابُ حامِدا ًو مُصلیِّا ً

It should be understood that the amount accumulated under the name of Provident Fund is a liability owed by the company to the employee. Therefore, when the employee, in a time of need, takes an amount from this fund as a loan and later repays the same amount along with some additional sum into the fund, then—even though this is labeled as a loan with interest—it is not considered an actual loan or an interest-based transaction from a Shariah perspective. This is because it is not a loan in the true sense: the company is simply giving the employee a portion of his own accumulated funds, and the installments that the employee repays are not going to the company, but are being returned to the employee’s own fund. Hence, this transaction does not fall under the category of interest (riba). Therefore, it is permissible and valid for the questioner to engage in such a transaction.